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Derek Lowe's commentary on drug discovery and the pharma industry. An editorially independent blog from the publishers of Science Translational Medicine. All content is Derek’s own, and he does not in any way speak for his employer.

Business and Markets

Mylan Begins Harvesting the Crop It’s Sown

There’s an interesting fight going on inside Mylan Pharmaceuticals. They, of course, are the longtime generic drug maker whose EpiPen prices have (understandably) made them a lightning rod for complaints about drug pricing in general. This New York Times article will give you the flavor of the company, and most unappetizing it is:

To understand Mylan’s culture, consider a series of conversations that began inside the company in 2014. A group of midlevel executives was concerned about the soaring price of EpiPens, which had more than doubled in the previous four years; there were rumors that even more aggressive hikes were planned. (Former executives who related this and other anecdotes requested anonymity because they had nondisclosure agreements or feared retaliation. Aspects of their accounts were disputed by Mylan.)

In (2014) meetings, the executives began warning Mylan’s top leaders that the price increases seemed like unethical profiteering at the expense of sick children and adults, according to people who participated in the conversations. Over the next 16 months, those internal warnings were repeatedly aired. At one gathering, executives shared their concerns with Mylan’s chairman, Robert Coury.

Mr. Coury replied that he was untroubled. He raised both his middle fingers and explained, using colorful language, that anyone criticizing Mylan, including its employees, ought to go copulate with themselves. Critics in Congress and on Wall Street, he said, should do the same. And regulators at the Food and Drug Administration? They, too, deserved a round of anatomically challenging self-fulfillment.

Lovely. As the article says, the company has decided that all the criticism is just the cost of doing business, and that their business is selling EpiPens at the highest cost they can. Bad press, upset parents, calls for them to change – none of that means much. So what would? The two things I can imagine are some big action at the FDA or some change inside the company’s management. But the FDA is not a price-regulation agency (which is something that the general public hasn’t always taken in). They regulate safety and efficacy for drug approvals, and post-approval they look for adverse events (in case labeling has to be changed or a drug has to be pulled entirely), and they also try to make sure that drugs are not being marketed improperly (with false or otherwise illegal claims). There is really no FDA regulatory framework for them to step in and say “This drug costs too much”.

In the generic drug market, though, an indirect method would be to make sure that there is enough competition (new nongeneric drugs are, of course, granted a temporary monopoly through the patent system). The agency has recently been talking about this, and I think it’s a good thing. Generic drugs are supposed to be cheaper, and there should be price competition among them, but in recent years many companies have found ways around these ideals. That gives them a drug whose market is already established and whose manufacturing issues have long since been worked out, an almost completely de-risked product. Squeezing the prices on these is not the idea, but that’s just what’s been going on.

Another thing that happens when you operate this way is that other government agencies get motivated to take a closer look at you. Last fall, Mylan paid $465 million to settle a misclassification problem that led to them getting higher rebates than they should have on EpiPens distributed through Medicare. But now it appears that there’s another $1.27 billion involved, according the the Health and Human Services Office of the Inspector General. It’s highly likely that the company’s own public behavior has brought this on, and it’s hard to say how long it might have taken for this to get picked up otherwise (if ever).

Now to company management. From that quote above, you’d get the impression that it’s going to be rather hard to get the attention of Mylan’s upper level executives. But there is one avenue: the corporate board. As it happens, some of the company’s investors are trying to replace the board members, and just this morning, ISS (Institutional Shareholder Services) came down on their side. They’re recommending that shareholders vote against ten directors and against ratifying the compensation plans for the top executives. That’s a pretty big deal, since ISS handles the proxy voting for a lot of big investors and funds, and if given the go-ahead can vote things en masse. This, you can be sure, is a cause for concern in the upper suites, and it should be.

I’ve read about this connection on the excellent Naked Capitalism blog, where it was also mentioned that the EpiPen has been derived from a defense contract. So they’re not only overcharging people, but they’ve based their product on research for defense purposes. Your tax money at work I guess.

Well, as with the FDA, the Department of Defense and agencies like the DCMA do not exist to set prices on commercial products. (In fact, it would probably be illegal for them to attempt to do so.) If you develop something under contract, you can’t abruptly jack up the price that you’re selling it to the government; that’d be a violation of the contract. But you still own the intellectual property, and you’re free to do nearly anything you want with it outside of the contract (assuming it’s not classified or export controlled).

If Uncle Sam pays you to do some engineering for them, you will own the intellectual property afterwards — but the US government will usually come away with an unlimited license to the stuff they paid you to develop. In theory (and sometimes in practice), they can take that design data to one of your competitors and get them to manufacture it. So in theory, the DoD could hire another company to make EpiPens (or their military-issue precursor, anyway). But they could only do this for themselves. I think the law would bar them from hiring a competitor to make EpiPens and sell them commercially. Still, it’d be quite a blow to Mylan to yank their contract away over this, and might even be a way of encouraging a generic manufacturer, by funding them to tool up for production.

Slide 18. I don’t imagine Coury could hear the complaints with all the money stuffed up to his ears.

I haven’t looked, but I imagine MYL has a staggered board, so replacing a few members of the BOD won’t do much. There’s a reason it’s smart for the CEO to pack the board with his buddies and deliberately make it hard to replace them.

I have been an expert witness on two court cases where Mylan sued a drug innovator trying to invalidate their patent. I was an expert opposing Mylan in each instance, Mylan’s positions were so scientifically ridiculous it’s hard to believe that they bothered or that they thought a judge would buy it, yet in each case they got a well-known organic chemist to support their position. There is no way that their experts wrote the opinions that they signed off on. But indeed they won one case and lost the other.

Indeed… I would love to supply some, but am bound by confidentiality. But like anon, I have been involved in a number of court cases as well (but Milan was not involved). But yes, I saw a similar picture all too many times. The other side hired a hot-shot prof to say things that, had they been said at a uni or at conference, would have lead said prof to have been laughed out of the building. However, unfortunately, all too often the judge knew nothing about chemistry and in the judgement said something like “hot-shot prof said it, so it must be true.”

I would love to see a rule put in place that required any prof giving evidence in a case to first give the same evidence and statements in front of the whole faculty, along with how much they were being paid for the privilege. Ain’t gonna happen, but is a nice thought…

I saw the same thing regarding hot shot statistics professor giving a stat analysis which was laughable. But the other side did get some revenge, They hired hot shot’s more famous professor where he did his thesis, as a counter witness and basically call him an idiot.

Big Pharma A was making and selling a BillionDollarMolecule A (it was a biggie). Generic Co B developed a new and better process B to make A, perhaps in anticipation of entering the market after the patent expired. “A” licensed new method B from “B” and switched to process B for the remainder of the patent period.

“B” tried to enter the market, post-expiration of the relevant (utility) patent, “A” sued “B” for patent infringement of their still in-force process patent, claiming that B’s method B was the same as their own process A. Part of “B”s defense was, “Then why have you been paying us to license our method B for the past several years instead of using your own process A?”

Generic Co B prevailed in that case. (First semester Orgo was enough to prove that process B was very much different than process A.)

Despite growing outrage among some Mylan investors, the ISS report may not make a difference. As the advisory firm noted, Mylan has adopted a provision that requires two-thirds of votes cast to unseat a director at a general meeting. “This provision makes it unlikely that any director nominees will fail to be elected to the board at this meeting,” the firm wrote.

I’m pretty sure George was spinning many years ago, perhaps starting in the 80s or 90s but could have been even earlier. Maybe someone should check under his grave for a hole that reaches the center of the earth and earthquakes are caused by out of tune spinning motions.

Will be asking my allergist to switch me to Auvi-Q from EpiPens later this month. In addition to the daughter of politician who leaned on WVU to get her an MBA she didn’t earn, the mother convinced educators that each child with anaphylaxis needed an EpiPen locked up at school just for them, rather than having one or two on hand for general use.

Slight correction Derek. It wasn’t that Mylan got higher rebates that they now need to pay back, they were actually paying a lower rebate the entire time and gov’t is now saying that was in error and they own a ton of money since they should have been paying the higher rebate.

If you want your product to be covered by Medicaid/Medicare, you need to pay Medicaid rebates on every script filled by a Medicaid patient. The rate is 23.1% for innovator products, but Mylan has only been paying 13.1% that is typical for generic drugs.

This is interesting because Mylan has been saying the entire time that Epi-pen is an innovator product, but telling CMS they are generic should pay the lower rate.

Re: “In (2014) meetings, the executives began warning Mylan’s top leaders that the price increases seemed like unethical profiteering at the expense of sick children and adults”

Parenthetically, who is kidding who? U.S. health care is a collection of crony cabals that fix prices, limit competition and erect barriers to entry. Via the politico-hacks that they grease. (HHS Secretary and Beltway Hack Dr. Tom Price is primarily fronting for his AMA pals, not the consumers.)

U.S. per capita health care costs are not 47% higher than Germany’s simply because of Mylan. “unethical profiteering”? How about the sick people without insurance or upfront cash that are turned away at a medical practice by a faux sympathetic “I’m so sorry…” script mouthed by the ladies working the front of the office and paid to do the dirty work while the doctors hide in the back? How is that denial of care more “ethical” than Mylan’s shenanigans?

And the hospitals and medical practices that gouge patients right and left with hyper-inflated pricing and prescribed diagnostics and services that provide marginal clinical or therapeutic value – because fee for service is the name of the game. I.e., too much is never enough…

Mylan makes for a convenient whipping boy as cheap grace virtue signaling, when it’s the entire system that must be flogged.

Why don’t insurers then just cut a check for the insuree and tell them to pick it up themselves? Doesn’t make sense that a negotiator with leverage should pay 12.5 times more than an individual.

$4500 sounds like the list price which is a completely fictitious number. Insurers negotiate a discount from the list price – in this case probably more than 92%. Maybe 95% or more.
I’m not sure if you can actually end up paying more for a drug than the insurer paid for it if you have a very large co-pay. Anyone?

So if you look at the EpiPen pricing that Heather showed to Congress, they actually hit a point where Net Pricing went down despite big Gross Price Increases. So managed care cracked down. Instead of working to drive better volume growth, they raised list price even more. Mylan is now a NV company so they can’t be taken over in hostile and good luck replacing Board members. Their governance has always been awful they just raised pay levels to new heights under Robert C. They should pay price for mis-rebating government; however, they may have some friends in Democrat party which loves generics and hates Brand Pharma (and most businesses). Mylan is a good generic manufacturer though.

Too lazy to look up all of this on my own right now, so I ask it here. It is my understanding that there are laws requiring that EpiPens (or equivalents) be kept on site at schools, camps, etc.. Terry, above, commented that there was at least one place where there must be an EpiPen available for every at-risk child, not just one or two for an emergency.

I am sure that there must be an expiration date on EpiPens. My bottle of soda has an expiration date.
Q1. What is the ~shelf life of EpiPens? (Legal and actual.)

Q2. Is there any estimate of the number (or percentage) of EpiPens that are actually used (properly, that is, in emergency situations, not at a party) before expiration? Do expired EpiPens get returned to Mylan? Is there a “returned unused” credit?

Q3. Have the Freakonomics guys (Levitt and Dubner) ever done an EpiPen analysis?

The stated shelf life is 18 months from date of manufacture. The distribution chain eats up some months off the front of that, so the patient doesn’t get much more than a year. This is shorter than it was on them 10+ years ago; the manufacturer changed the formulation and as a tragic side effect lost some shelf life.

People have studied expired EpiPens collected from the public, and found they still contain an effective dose for some years. But the 1% worst of them, do you trust those to save a life? I’m sure the FDA is inclined to be fairly conservative on that, and I’m inclined to think they’re doing their best with what the manufacturer has handed them. And I doubt that the manufacturer has flat-out cheated or anything — why would they when they can just refrain from optimizing for shelf life.

So yeah, doctors’ offices do collect the expired ones, but no nobody tries to mine them for their remaining epinephrine. That’s so not good manufacturing process, and anyway there’s no point, the drug itself is cheap.

(Used at a party? Is there an adrenaline-huffing scene I’m not aware of? I guess it would make sense, get wasted on alcohol, put adrenaline up your nose to stay awake, drink some more…)

“Who would cry if someone, who like (and probably needs to) to put on a good show for his brand, manages to RICO the business?”

That schadenfreude would be delicious. Considering that the “pattern of criminal activity” mentioned in RICO only takes 3 legal violations in 10 years (and let’s be honest, even a company busting their butt to stay legal and ethical usually gets 3 violations in ONE year, typically OSHA hey-dummies), it wouldn’t be hard to slap Mylan into next week with RICO tripled damages.

What I’d really like to see happen is corporate capital punishment: The forced divestiture and dissolution of a company, following illegal acts. Can’t put a corporation in prison, but you sure can put one to death!